KUALA LUMPUR: Malaysia's oil and gas sector will be supported by continued upstream investment, offshore activity and recurring contact income amid rising concerns on the renewed Middle East tensions that pushed Brent crude price back above the US$100 per barrel (bbl) level.
RHB Research noted that Petroliam Nasional Bhd's (Petronas) capital expenditure (capex) of RM41.4 billion in the first half of 2026 (1H26) looked substantial, but focus should be on the upstream segment.
It said Petronas' capital investments in 1H26 were skewed by downstream business, which accounted for RM26 billion or 63 per cent of the total, driven by additional capital injection into the Pengerang Refining Company and Pengerang Petrochemical joint venture.
"Hence, we believe upstream capex is the more relevant indicator, rising 19 per cent year-on-year to RM8.7 billion in 1H26. Overall, we believe the growth in upstream investment remains the key positive takeaway for Malaysia's oil and gas sector," it said in a note.
The firm kept its Brent crude price assumption at US$89/bbl and US$72/bbl for 2026 and 2027, respectively, reflecting its expectation for the current geopolitical risk premium to eventually moderate.
RHB Research added that the higher oil price environment should provide a favourable backdrop for upstream activity, while elevated freight rates offer potential upside for shipping companies like MISC Bhd.
"Meanwhile, recurring contract income, ongoing offshore activity, and healthy orderbook visibility should underpin earnings resilience across the sector.
"Overall, we remain constructive on the sector, with upstream activity, contracted cash flows, and tanker-market strength providing key earnings support," it said.
The firm maintained its "Overweight" call on the sector with MISC and Dialog Group Bhd as top picks.
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